The main aim of this act is to eliminate the loophole of late deliveries from the real estate sector of India.
Builders would need to register all the projects covering more than 500 sq. mtrs of area. Earlier this limit was 1000 sq. mtrs.
Builders would need to keep 70 per cent of the sales proceed including land cost in a separate escrow account.
The Real Estate (Regulatory and Amendment) Act, 2016 has been approved by the government. Its impact on real estate and parties involved in real estate would be exciting. 20 major amendments have been done to the Act on the recommendations of Rajya Sabha. All of these amendments aim at promoting buyers’ interest and transparency in the real estate market. Several amendments will work differently to achieve one goal. Let’s see how different amendments will clean the real estate sector of India:
1.Quick Deliveries: the main aim of this act is to eliminate the loophole of late deliveries from the real estate sector of India. Most of the buyers shy away from investing in real estate because their funds remain tied up in properties for years. With regulatory body in place, this Act aims for faster and timely completion of projects and regain investor trust. The redressal system has also been made faster wherein a grievance would be redressed within 60 days so that the work resumes as soon as possible.
Compulsory Registration: builders would need to register all the projects covering more than 500 sq. mtrs of area. Earlier this limit was 1000 sq. mtrs. However, decreasing the limit to 500 sq. mtrs means more projects would fall under the Act, expanding the scope of Act. Earlier, registration wasn’t compulsory and most of the unorganized sector did not register their projects, giving way to black money. Now, along with registration, it is mandatory for the builders to furnish details of the property online which would be available to public. This will induce transparency in the system.
3.Escrow Account: builders would need to keep 70 per cent of the sales proceed including land cost in a separate escrow account. This will discourage diversion of funds and also foster speedy completion of the work. Earlier, builders used to use the funds received for one project towards initiating other projects. This led to the delay in completion of the project at hand. However, due to this escrow account, builders won’t be able to make new investments and it will lead to an overall slow market because new investments could not be done until then project at hand is over.
4.Carpet Area the carpet area is specifically defined in the Act. Now, builders or promoters won’t be able to include extra spaces that buyers are unaware of, in the carpet area and charge a higher amount to buyers.
5.Punitive Measures: the punishment for failing to adhere to the Act has been made more stringent. Earlier, builder was subject to 3 years of imprisonment but now he would be imprisoned for 7 years if he violates the act and he would be also liable to pay 25 per cent of the fair market value of the property in picture. By imposing more restrictions on the builders, this Act aims to protect the interest of innocent buyers.
6.Transparencythe main objective of this Act is to promote trust and transparency in the dubious real estate sector in India. To achieve this, taking approvals from all the competent authorities has been made mandatory for the builder before he can start with a project. This way, builder would be left with negligible scope to cheat innocent buyers and satisfied buyers will also furnish more trust in the system. However, in order to fulfill one objective of transparency, the other objective of fast completion of the projects would be defeated because gathering all the approvals take time and the project won’t begin until and unless all the approvals are in place.
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